Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.
How are you today?
The gain on the sale of a house acquired in a 1031 exchange is the same as any gain - your sales price less your basis.
Your basis in the new property is the basis of the previous property plus boot received
I guess I don't understand can you make it simpler?
When you gave up old property for new property the tax book value of that property transfers to the new property
So, if you had a house that originally cost $500,000 and you took $200,000 of depreciation, the basis in that house is $300,000. You then trade for another property, plus you pay $100,000 for the new property.
Your basis in the new property is $300,000 plus $100,000
The property I sold was in Alaska, The property I bought was in Az. Then I sold the Az.property . The property in ak was a rental, and the property I bought in az I rented seasonaly for 3 years. I then lived in it as my second home before selling it
How long did you live in it?
4 months a year for 3 rears
So it won't qualify for the principal residence exclusion. You would need 24 months in 5 years for that.
Your gain on the sale of the house in Arizona is whatever basis you had in the house in Alaska less any depreciation you took
Don't want to use it as principle residence as I plan to sell my ak. home and use that exclusion this year. I consider myself an ak. resident and have been for 34 years
So your gain will be the difference between what you sell the property for, and its basis
which your basis will be what you paid for the original property in alaska, less depreciation taken both on the alaska home and the home in arizona
I did write this prop. off as a rental for the first 3 years. do I subtract that from the basis?
Then, the amount of the gain that is attributed to depreciation will be recaptured
Explain again what I use as a basis for this house. I paid 135K and sold it for 189k
Then you would take $135,000 minus depreciation you took.
Then take that result, and subtract it from $189,000
What about the first statement you made about the basis I had in the Ak prop. plus any "boot???"
Boot would be if you exchanged property and then paid additional money for the replacement property
so if you traded your alaska home and paid $100,000 for the house in Arizona then you would add $100,000 to the basis
That's called 'boot' in the tax world - don't ask me why
So essentially I didn't exchange property, I sold one and bought another and went thru the 1031 exchange dprocess to defer any gains at the time of the orig. ak sale
yes, and you would recognize those gains now
at the sale of the replacement property
The gains of the az fproperty right? not the gains on the ak. property as well?
when you do a 1031 exchange you don't recognize the gain at the time of the exchange
then, when you sell the replacement property you recognize the gain
The az. gain or both gains?
I thought if I lived in it for 2 years the ak. gain would be forgotten
You said you only lived in it for 4 months out of the year
correct but it was my secondary residence
You have to live in the house for 24 months
You only lived in it for 12 months
Even if it is a secondary residence or does it have to be my primary residence
has to be primary residence, and you have to live in it for 2 full years. That's 24 months
if you lived in it 24 months during a 5 year period then you can exclude the gain
sO EVEN IF I HAD FULFILLED THE 24 MONTHS BUT IT WAS A SECONDARY HOME, i'D BE SADDLED WTH ALL OF THE CAPITAL GAINS
I guess that wasn't the answer I hoped for. The ak prop. was a rental too so I have to deduct the depreciation from the basis as well?
Why did I even go through the 1031 exchange process?
To defer your gain until the sale of your replacement property
You didn't have to pay tax on the gain when you sold the original property
So theoretically you could defer gains indefinitely if you kept exchanging property
But I have to pay it now along with the gain on the AZ. property too right?
yes, because your basis in the old property transferred to the new property
it's over my head. I guess i'll have to take your word for it
I would suggest having a tax professional handle your tax return
Because this can be hairy
If you're satisfied with the answer, please feel free to rate my service as "excellent" to ensure I get credit for assisting you.
Thank you for your positive rating ... please come back and see us any time you have a question. Have a great night!